Nokia: sales slump caused by inadequate product range

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Nokia's reputation as the unchallenged master of the mobile phone industry took a blow this week when it said it had lost market share in Q1 to increasingly confident competitors. Nokia's statement is worrying for its investors, but suggests that the telecoms market as a whole is looking up.

While Nokia originally forecast that sales in the three months to March 31 would be three per cent to seven per cent up on last year's level, it said it now expects the figure to be two per cent lower at €6.6bn ($7.96bn). With a product range skewed towards the low end, chief executive Jorma Ollila said the company lacked attractive medium-priced products in Europe and the North American market.

"We have not been able to grow with the market in the United States and Europe, where our share has been very strong," Ollila said.

Nokia estimated that mobile phone sales by volume increased 25 per cent in the first quarter, while it had only been able to achieve a 19 per cent rise in handset sales. This led some analysts to speculate that it had lost up to four percentage points of global market share from the 35 per cent achieved in Q4.

While Nokia says this is only a blip that would be corrected with further model launches throughout the year, the setback could be significant as Nokia has so far proved invulnerable to the advance of consumer electronic companies into the market, which has hit other players such as Motorola.

The Finnish company's woes will also bring delight to Microsoft, for whom Nokia represents the biggest obstacle to its gaining the same dominance of mobile computing as it has on the desktop.

Nokia's shares dropped 18 per cent to $17.42 on the New York stock exchange though the company expects earnings per share to be €0.17 ($0.21), within its forecast range of €0.17 to €0.19 ($0.21 to $0.23).

The news cast a pall over mobile operators and chipmakers on the stock market, though the Nokia statement suggests the market is recovering confidence. Nokia Networks, which provides infrastructure, exceeded expectations for the second quarter running. It is expected to show 16 per cent growth over last year's level to €1.4bn ($1.69bn).